Sequencing of Club Enlargement: "big bang," "gradualism," and internal reform

In an incomplete contract framework, I analyse how a club chooses its enlargement strategy in the presence of congestion. The club faces two waves of applicants. The applicants are homogeneous within each wave but differ in their conformity to the club's standards across waves. For each wave, the club chooses between an early entry offer, when the club can enforce the applicant's reform, and a late entry offer, when the applicant has to reform itself in order to be admitted. In addition, the club undertakes its own internal reform which, if successful, can eliminate congestion. I show that the club uses the "gradualism" approach (admitting waves sequentially) when the waves substantially differ in their compliance with the club's standards, and the "big bang" approach (admitting waves simultaneously) otherwise. Moreover, the club never admits a less advanced wave before a more advanced one.